Shanghai index declines amid inflation worries

08:41, November 30, 2010      

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China's stocks fell, dragging the Shanghai Composite Index lower for a second day, on speculation tighter monetary policies to counter inflation will slow the country's economic growth.

Industrial and Commercial Bank of China Ltd sank 0.69 percent after the Economic Observer said regulators are assessing data from lenders to finalize new supervisory requirements. Jiangxi Copper Co lost 2.2 percent amid concern slowing economic growth will curb commodities demand. Shanghai Fosun Pharmaceutical Group Co led gains by healthcare and consumer-staple stocks on speculation the industries will weather tightening policies.

The Shanghai Composite fell 0.19 percent to 2866.36 at the 3 pm close on Monday. The CSI 300 Index dropped 0.15 percent to 3190.05.

"Investors remain cautious on speculation of tighter policies including interest rate hikes," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co, which oversees $285 million. "The fluctuations will continue with downward pressure."

The Shanghai gauge has slumped 9.3 percent since reaching an almost seven-month high on Nov 8 on concern that accelerated monetary tightening will crimp economic growth. The central bank has ordered banks to set aside larger reserves twice in two weeks after raising interest rates in October, the first increase since 2007.

Stocks fell on Monday even after European governments sought to quell market turmoil by agreeing to give debt-strapped Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to cover a share of future bailouts. The MSCI Asia Pacific Index climbed 0.7 percent, the biggest gain in more than a week.

The banking regulator will require lenders to maintain a minimum overall capital adequacy ratio of 8 percent, plus 2.5 percent of surplus capital and another countercyclical buffer of up to 2.5 percent, the Economic Observer's report said.

Agricultural Bank's Hong Kong-listed shares were also cut to "neutral" from "overweight" by JPMorgan analysts including Samuel Chen. The analysts also downgraded Bank of China Ltd's Hong Kong and Shanghai shares.

Gauges of materials and energy producers in the CSI 300 Index dropped 1.7 percent, the largest declines of 10 industry groups.

The Shanghai Futures Exchange said on Friday that it will increase the proportion of cash that traders must deposit with brokerages on copper, aluminum, steel wire, gold and fuel oil transactions to 10 percent of the total value after the market closes. It will raise the limit on daily changes in prices to 6 percent, the exchange said as part of a wider government crackdown on commodity speculation and food prices.

The government will continue to tighten monetary policy to counter high inflation, BOC International said in a report on Monday.

"The past weekend was almost a vacuum for news on government policies," said Dazhong's Wu. "That added to uncertainties regarding the future control measures in the market."

Measures of healthcare and consumer-staples stocks in the CSI 300 advanced 2 percent, the most among the broader index's groups, as investors bet earnings in the two industries will weather tighter monetary policies.

"Healthcare companies' earnings are stable, regardless of price controls or recession," said Li Ying, an analyst at Capital Securities Corp in Shanghai. "Nothing could affect demand for medicines."

Hong Kong's Hang Seng Index rose the most in more than a week. The Hang Seng Index rose 1.26 percent to 23166.22 on Monday, the steepest climb since Nov 18. The Hang Seng China Enterprises Index of H shares of mainland companies gained 1.03 percent to 12888.27.

Source:China Daily


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